May 19, 2008

Within the VRM community there is a view, most clearly put forward by Alec Muffet and Adriana Lukas, that VRM is a ‘phenomenon’ like blogging. Vendor Relationship Management will happen, it’s argued, as clever geeks come up with clever software tools that work on the user’s side, helping individuals gather, store and manipulate their own personal data, and share this data in ways they see fit with other parties, including suppliers.

I felt uneasy about this view when it was first expressed but couldn’t get to grips with why. Now I think I understand. This vision of VRM is both incredibly helpful and incredibly dangerous, both at the same time.

It’s incredibly helpful because it opens up a vista of new opportunities that we can seize right now, without having to wait for powerful corporations to say, “Yes, we will invest resources in making it happen.” Once the tools for blogging were invented, people were empowered to express their thoughts and opinions online without any say-so from the powers that be. This, in turn, changed the environment that these powers had to operate within. Suddenly there was another influential channel of communication they had no control over.

Likewise, as clever geeks come up with cool tools that help individuals do what they want to do with their data – rather than having to fit into corporate systems that are invariably designed to fit corporate purposes – this will change the environment in which all organisations operate, including the biggest, most powerful corporations with the most sophisticated CRM systems.

This part of the vision is very powerful. VRM probably won’t happen without it. So why is it also so dangerous?

Let’s take an iconic example from the wild west, bottom up, individual empowered Web 2.0 phenomenon: the peer review. In one sense, peer reviews perfectly fit Alex and Adriana’s vision of a bottom up phenomenon that’s beyond top down corporate control and spawns a new environment. There are many, endlessly retold stories about the power of one individual blogger upending the might of entire corporations by pointing out that a particular emperor has no clothes. Bicycle locks that can be opened with paper clips, come to mind for example.

Trouble is these apocalyptic stories are a tiny exception, not the rule. The reason we all know them (and repeat them ad nauseam) is because they are so rare. They stand out from the crowd, so what’s happening in this crowd, where 99.99 per cent of peer reviews remain?

The answer is, ‘not as much as should be happening’, because left as they are – as an unorganised, chaotic, bottom-up process of individuals simply reporting on their experiences and opinions – the real potential of the peer review is actually being squandered.

Take the issue of trust. In a world where anyone can say anything, and anything goes, it’s easy for sellers to play fast and loose with the peer review format. Retailers can choose to display only the positive reviews, perhaps showing only one superficial criticism for the sake of credibility. Suppliers can pay their PR companies to post positive reviews, thereby turning the review into just another messaging channel. Yes, of course, in this wild west atmosphere, they may be ‘found out’ and exposed – but only after the damage has been done. After people have been misled, and trust undermined.

An alternative approach is to have filtered, audited peer reviews – allowing reviews only from individuals with proof of purchase, for example. This in turn requires mechanisms for delivering proof of purchase: a new requirement which is not simply a bottom up tool in the hands of a user but an organised process. Reevoo.com does exactly this. It only accepts reviews from accredited purchasers of products via participating retailers, which has involved Reevoo.com having to build relationships with these retailers, and set up standardised information processes, both of which take us yet another step from the simplified world of “cool tools working on the individual’s side”.

There’s another problem with leaving the peer review as a blogging-type phenomenon: how am I supposed to find all these reviews, read them, and assess their value? If ten thousand people separately review a product on their own personal blogs, how am I supposed to access them all, read them, and gather a balanced sense of the product’s value from the many contradictory things that have been said about it?

There’s a complex tangle of issues here. First, there’s the question of access. Yes, if you have a clever search tool you might be able to discover each one of these individual reviews, but it’s still hard work navigating your way to each one. Far better if they were centralised in one place under a heading “Reviews of product X”, which takes us beyond cool tools on the individual’s side to organised web sites.

But that’s only the beginning. Assuming you’ve already dealt with the trust issue of kosher versus non-kosher reviews, there’s still an outstanding issue of utility. Frankly, a review that say’s a product or service is ‘great’ or ‘sucks’ is of limited value. One of the biggest drawbacks of the peer review today is its amorphous nature: the amount of hard work that’s needed to find and read many peer reviews and generate are realistic picture of the product in question. What the buyer needs is detail – and many reviewers don’t think of mentioning many details when writing their review. That’s why Reevoo.com prompts reviewers with particular questions. If it’s a TV for example, what about its design, sound quality, image quality, ease of set-up, and so on? Here, we are on a journey from unstructured to structured data – and the more structure there is the greater the potential value.

With structured questions for example, it becomes possible to collate many different reviews to ‘score’ different aspects of a product (‘its image is really sharp, but its greens are sometimes a bit weird, and it’s a real hassle to get it working’) along with an overall rating of ‘8.3’ or ‘9.6’. It’s impossible to create such a picture without a disciplined approach to information management that has nothing to do with the original process of individuals volunteering their opinions.

Please note how, in just a few paragraphs, we have travelled a long, long way: from ‘anything goes’ information to certified information (trust); from distributed to centralised; from unstructured to structured, etc.

I could go on. There are other data quality issues. How old is the review? Is what it is saying out of date? Is it factually incorrect? There are usability issues. A buyer who is a novice in a category has different needs to those of a connoisseur. Someone willing to invest time and effort researching the ‘absolute best in class’ is different to someone who wants to find a good enough product in the least time possible. These different user needs create a further knock-on need for even more information processing and presentation (different content for different types of user) plus the need to research and understand these different needs … which, in turn, generates even more requirements.

Doing all this researching, relationships building and info-crunching takes a lot of hard, expert work. That means you have to employ people, in a business, that earns enough money to cover its costs. So what is its business model? What sorts of relationships does it build with individual reviewers, retailers, suppliers and so on? How is value to be exchanged between them to make the service viable?

The upshot of all this is simple. VRM is not just a ‘phenomenon’ generated by placing cool tools in the hands of users. Yes, of course, we need cool tools (it may not happen without them). But we also need new types of service, and new types of business models to make these new types of service possible. It’s about all three, together.

The danger with the ‘VRM is a phenomenon’ argument is that it encourages us to focus on just one of these pillars and to ignore the other two. If we do, we will never create a stable, scalable platform – and VRM risks being still born.

March 15, 2008

There has been a fascinating exchange of thoughts about markets, prices and VRM/buyer-centric information processes.

It started off with a comment by Doc Searls at the last VRM Hub meeting in London about markets being conversations – and a question from someone in the group basically asking ‘why do we need conversations because markets tell us all the information we need to know?’. Over the next few weeks, this triggered a really rich exchange of thoughts.

I have collected some of the comments below, if you are interested. The nub of the discussion seems to be as follows:

a)VRM will provide us with the potential to tease out the ‘right’ price to a much finer degree of detail, far more efficiently

b)‘price’ doesn’t capture all value, by any means. The ability to exchange more, richer information opens up all sorts of possibilities for much richer exchanges between buyers and sellers (and other parties).

c)‘Markets’ where ‘consumers’ exercise ‘choice’ throw up an awful lot of useful information. But they also destroy an awful lot of information. By preserving and unleashing the information destroyed and ignored by traditional markets, VRM opens up all sorts of new opportunities for increased and improved value creation.

If you recall we were talking about the difference between "conversations" and "pricing". In the example, the chap from Ghana has a much more rewarding experience having a discussion about a shirt than he would just paying for it, and there followed a more involved discussion re the emotional poverty of pricing, and how pricing "destroys information".

I was uncomfortable at this, because market theory argues the opposite, ie that clear pricing actually offers a huge amount of information that in a "haggle" based market is hidden, and it is arguably far more efficient *for the buyer* as it is faster, I can rapidly compare it etc. I also felt the brand had something to do with it.

Anyway, I think I've come to a form of conclusion, which is this:

Firstly, ANY transaction needs a certain amount of information to be completed by both sides. The question is more how do you get that information.

In the oldest form in the world, you have a "conversation". I the buyer, knowing nothing, have a conversation with the seller until I feel the information asymmetry has reduced enough for me to buy.

However, this approach is unsatisfactory to me as a buyer as it is inefficient for the speed and comparison reasons noted above.

So, over time we have evolved a number of other mechanisms where the "conversation" can be had *before* the transaction.

One is the "wisdom of crowds / friends advice" approach - if everyone else is wearing the shirt, and/or my friend says its great, and I know what they paid, I don't need so much of a conversation.

Another is (theoretically) independent evaluation - reviews in newspapers etc.

A third is commoditisation - I know what X is and roughly what it costs as it is a well known "thing" in the market, so all I need do is go and get a "thing" I like from someone I want to deal with.

A fourth is marketing / advertising - the supplier attempts to have "the conversation" with me before I buy, via ads etc (and some would argue paid advocacy via the above 2 channels) so that when I arrive at said sop, we have already "spoken" and all I need do is hand over the dosh.

So - to how this impacts VRM.

If we assume that VRM is going to be a transaction based system, ie it is about me finding the best combination of whatever factors I feel I want in order to buy from the suppliers who have got an X, then I think it will have to be:

(i) A market(ii) A price based system

i) A market

As I understand it, VRM /in implementio/ is a pull based market - instead of me going down to the "silicon soukh" (thats a pre eBay term for e-markets btw ;-) and being assailed by cries from all the merchants, I put a request out there into the market, and suppliers line up to supply me. I then select on the best fit to my criteria, and off we go.

ii) A price based system.

In essence, I don't want a "conversation" unless I can see a price pretty damn fast. The conversation as such is about giving me the information I sought, and allowing me to ascertain the further facts I need to reduce the information assymmetry to the point where I want to buy Y, not Z.

What will drive the amount of conversation I need/will get is the transaction cost. If I am buying a $1 piece of music, say, I may want to discuss at length the joy of this recording over that one, but the seller will be looking at a ticking meter of his time (= money) and will soon make a "Fish or cut bait" call. If it is a $10,000 car, different matter (in theory - actually I'm more interested in music than cars, but you get my drift....). In other words, if VRM helps the seller to put up more information than todays systems, then you get more conversation. If not, you won't.

Which brings us on to brands and transparency, translucency etc etc.

In the previous inefficient (ie non-online) market you could get away with "probably the best lager in the world" as the mocking was unheard since it had no access to the media. But over time our generic cynicism increases so more and more "sponsoring" of the message by ever more authoritative 3rd parties was employed - or, as has been noed elsewhere, the "conversation" (ad etc) was turned into an art form, so you bought into the art form, not the product.

We are now in the interim period - blogs etc mean that translucency is emerging - marketeers know that they get pushback and it is visible online, so they are having to expose more of the fact base - or it is being exposed for them. But as I noted in a psot on my blog last night, social media is now being used as much to obfuscate as to inform, and its far from clear whether increasing tranparency will win - there is more money and focus going into obfuscation than illumination.

VRM's opportunity is to re-establish the move to transparency by re-creating markets where the direct customer requirements can cut through the obfuscation attempts, and thus to this extent I think it will be less about "conversations" which can be perverted - and more about price discovery to a series of specified datapoints (Focussed conversations), which cannot.

I replied to Alan’s musings with this:

That is really interesting stuff.

I share your discomfort with harking back to the largely mythical good old days of street style markets. The idea of going back to 'market conversations' of this sort is a fantasy for most situations. The reason why we have fixed, open pricing coupled with the exercise of choice by buyers is that it massively reduces transaction costs. Even with modern technology that is not going to change, except at the margins.

There are also all sorts of emotional/fairness/legal issues with the hidden pricing generated by private conversations.

But my point about markets destroying information still stands.

I made that comment in response to a question from some guy who was implying that the price mechanism solves all market problems. It doesn't. It's wonderful at what it does. But it doesn't do an awful lot more. With VRM we can do this awful lot more.

There are two ways in which price-based markets destroy information.

1) The genius of money price is that it strips out (or more strictly speaking, represents the final outcome) of million upon million subjective assessments of value, by people with different needs and priorities, across a vast range of incommensurate categories (bananas, socks, flights, computers). Money price obviates the need to worry about any of these 'background' details. That is why it is so efficient - precisely because of all the information it stops us from having to worry about.

But this efficiency also destroys valuable information. If you really want to understand whyone product is more successful than another, or commands a higher price premium than another, or one group of people are doing x and another group are doing y, you need to dig back and uncover all the layers of information the efficient market transaction ignored. New technologies - and especially, VRM - help us capture that information while it is being generated without destroying the efficiency of markets.

2) Market transactions destroy information at another level. Yes, they generate a huge amount of information about supply and demand but this information is fatally flawed in two ways. It provides us information about final outcome of millions of decisions by millions of people, but it tells us nothing about the decision-making processes of these people (the 'why') and it tells us nothing about 'who' they are. It is therefore unable to to make any connections between the two. Because of this, it turns 'the buyer' into an unfathomable black box which is unable to 'speak' to the market except after the event - after a choice has been made. This is incredibly inefficient.

Black box information destruction happens in two ways.

First, it tells us the result of people's decisions only after they have made these decisions - when the price has finally been 'discovered' in the marketplace. It does not provide us with any information about what the individual considered, looked for, etc during the decision making process, before making their decision. For the purposes of successful exchange of value - for really learning about the dynamics that are driving demand - this is the real gold. This is information that can change what both sides do to get a better result - but it is information that is lost under our current system.

Second, it only tells us about supply and demand in the aggregate: the net result of the actions of 'the market' as a whole. It tells us nothing about what the individuals Mark, Mary or Michael did, wanted to do but couldn't, etc. It doesn't allow us to 'drill down' into any meaningful detail.

VRM opens up the opportunity to unleash both these rich new veins of information: it allows the real conversation about value to begin. By doing so it will change the way markets themselves work.

By liberating the information price-based markets destroy, VRM has the potential to become an engine of a massive new spurt of social and economic growth.

It's important for us to enlarge the meaning of markets to include more, and to be defined by more, than transactions alone. The efficiencies of reductionism apply to the concept of the market as well. From places where people meet to do business and make culture, markets have been reduced to a mechanism for arriving at exclusively price-based decisions -- and a raft of conclusions have been based on that mechanism alone. This has put blinders on our view not just of markets, but of economics, sociology, politics and much else.

We began to visit this in Markets are Conversations chapter of Cluetrain <http://www.cluetrain.com/book/markets.html>, where we wrote,

”The first markets were markets. Not bulls, bears, or invisible hands. Not battlefields, targets, or arenas. Not demographics, eyeballs, or seats. Most of all, not consumers.”

”The first markets were filled with people, not abstractions or statistical aggregates; they were the places where supply met demand with a firm handshake. Buyers and sellers looked each other in the eye, met, and connected. The first markets were places for exchange, where people came to buy what others had to sell -- and to talk.”

We need to finish unpacking that. And to take the concept of markets beyond transaction and conversation into the realm of relationship. Some of those are momentary, some are enduring; but all contain far more information than what one finds in transaction alone.

I think there is a few misconceptions about markets and pricing in this recent conversation.

Economists often talk of markets as price discovery mechanisms, and the freer the market, the more efficiently those prices can be discovered. In fact, in the absence of all transaction costs, free markets assure the efficient allocation of resources, regardless of initial distribution—that’s the core tenet of Law & Economics as proven by Coase ’60 [1]. Of course, we can’t ever actually get rid of transaction costs completely, but that’s ok. The lower they go, the more efficient the market, the better the overall utility of the economy

.

But let’s not confuse making markets more efficient with making everything about pricing. Only in the simplest commodity markets is pricing ever the sole factor. Whether you focus on relationships and conversations or the 20th century model of brand-driven differentiation, there are lots of factors that influence a transaction at least as much, if not more, than price.

I think it makes more sense to think of markets as “value” discovery mechanisms. It just happens that the industrial age conflated price and value, so the distinction was often ignored. When we have efficient markets, everyone has the simplest, fastest way to find the highest value we can, including price, quality, aspirational expressions, relationships, and moral or ethical congruence (such as being “green” or animal friendly).

So, there are at least two distinct ways VRM can help reinvent the market. First is providing a more efficient value discovery mechanism, in part by reducing transaction costs. That is, helping us find the good stuff more easily, more quickly, and more cheaply. Second is by helping to define new avenues for creating value, through richer, more meaningful relationships, better service, and greater customization in product and service offerings.

One particular false hope for VRM that I don’t want us to get distracted by is the illusion that by moving power from Vendors to Customers we can force better prices. That’s a win-lose game that is actually wasting resources trying to shift the line of marginal value towards the individual. It doesn’t result in any new value in the system and yet it increases transaction costs. This is clearly a net loss for the overall economy.

A related architecture with a much more satisfying win-win outcome is aggregating users to define & document demand in order to encourage vendors to fulfill that demand. This isn’t about market power, it is about market validation. Eventful’s Demand service [2] does this by letting people state their interest in having a particular event in their neighborhood. Like a petition, this demand is aggregated and presented to the event organizer to get them to actually bring the event to locations with the most demand. This not only helps bring the product to the individual, it helps the performers understand and meet market demand. This type of demand discovery actually creates value. There is more profit for the performers—or they wouldn’t bother doing the extra show—and end users get to go to an event they otherwise may have missed. This is such a VRM-style win-win that I have asked the founder of Eventful to join the conversation

.

I’m looking forward to seeing how we might build on Eventful’s approach.

March 04, 2008

Yesterday, Tim Wilson and I gave a presentation on the brand impact of Transparency, at the launch of Organic Exchange Europe in Amsterdam. The presentation is available under 'Resources' and 'Implications for Marketing' on the RightSide Up home page.

The presentation describes a move from brand opacity (hiding knowledge to build brand premiums) through translucency (offering sneak peeks to support brand story telling), to fully-fledged transparency (a free and open information exchange with stakeholders).

Transparency is a founding principle of RightSideUp thinking and the most critical enabler of social markets.

But actually the relationship between RSU and transparency goes even deeper. There's a two-way relationship going on here.

Transparency is both enabled by VRM (which restores information and social symmetry between individuals and institutions) but it also drives the need for VRM, as any remaining asymmetries stand out like beacons of inequity, demanding ever more efficient matching services on behalf of the individual.

In principle, at least, this will create a virtuous circle of ever more transparent and trustworthy relationships.

Transparent individuals want transparent products which match their precise needs and social context.

But such richly transparent products can only be produced by transparent organisations which share their product backstory, seeking to combine both brand principles and supply-web production processes.

Inevitably though, transparent organisations' self interest lies in creating transparent markets where their true stories can be selected over their rivals' over-bundled half-truths and obfuscations.

Closing the systems loop, these transparent markets are the ones in which social and information democracy prevail - in which individuals are enabled to both share and benefit from their personal assets - the underlying principles of VRM.

RightSideUpness is thus embedded at the centre of the Transparency system and the Transparency system is, to my mind, an inevitability.

Make no mistake. Transparency is already here. Henceforth we can look forward to stakeholder to stakeholder, stakeholder to enterprise and enterprise-wide 'mutual marketing' tools to make it work for us not against us.

The next decade will be a race between Microsoft/Google vs Oracle/SAP to provide the infrastructure for a see-through world.

February 19, 2008

If employees were healthier both employers and employees would benefit.

Employees have a direct and obvious interest in improving their own health. For employers, the biggest potential benefits come in the form of reduced labor costs and improved workforce performance. This issue should be a win/win.

So far however, US employers have approached this challenge from a command-and-control, carrot-and-stick standpoint. They have offered employees financial or other incentives in exchange for their health improvement, risk reduction and chronic disease self-management efforts.For example, employees in the US can“earn” extra days off, reductions in their health insurance premiums, cash payments, gift certificates, and similar rewards for participating in health management efforts that make specific health behavior changes (e.g. quitting their tobacco use) or achieving specific health metric changes (lower weight, blood pressure, cholesterol, etc.).

A recently popular form of insurance in the US is “Consumer-Directed Health Plans” (CDHP). However, most CDHP programs also ‘incentivize’ employees by increasing the financial risks of ill health: by increasing the deductibles they must pay before the insurance plan take over.These deductibles are in the $1-2,000 range for individuals, and $2-5,000 for family coverage.

But now there is another, more buyer-centric, approach that could work much better. This is the concept of Employee-Directed Health Management (EDHM).

EDHM looks at the employer/employee contract from a different angle: the angle of the individual. It lets individuals make their own decisions about their health plans, choosing the key elements of the strategy and initiatives they will participate in including how their health will be assessed, improved, and what they will gain thereby. It also broadens the scope of the relationship beyond ‘payment for work done’ to how the employer can help individuals enhance their ‘life assets’ – and how, in turn, individuals’ improved life assets can help the employer reduce costs and improve performance.

The five key life assets involved in employee-directed health management are:

·Health – mental, social, and spiritual, as well as physical – including energy levels, “morale” and related work-affecting dimensions

·Power – reality and perceptions regarding one’s degree of control over work and life demands, plus a degree of autonomy or protection against unwanted control by others

·Time – amount of discretionary time available and the degree to which it can be managed. (Because working to improve one’s health requires an investment of time, this is usually a ‘cost’ rather than a benefit of such initiatives.)

What’s in it for the employer? Current estimates suggest that improved employee health will improve US employers’ financial performance by two to five times as much as healthcare cost reductions alone.

UK and other European employers do not have as much to gain from EDHM as their US counterparts (because they do not pay health insurance) but they still stand to benefit from the broader effects of improved workforce health: higher productivity and performance and reduced staff turnover.

February 13, 2008

It’s hard to imagine a mantra more powerful in modern commercial circles ‘identify and meet customer needs’. It’s also hard to imagine one more mesmerising in its delusions. To ‘get’ buyer-centricity we need to rise above its amazing mind-bending qualities.

First, let’s appreciate the power and subtlety of this mantra.

It has infinite potential and therefore appears complete; it means we have to search no further for answers. Human needs and wants have no bounds, so at first glance the mantra leaves us nothing else to consider. This effect is subtle but hugely important: it shuts down curiosity. We no longer have to worry about what we are doing, only how well we are doing it.

It’s both a call to action (what to do) and a guide to action (how to do it). To meet customer needs we first have to identify these needs, which means we need to focus on customers, understand them and gain insight into them. This is a clear agenda for work and progress.

It is a moral justification. What better a win-win is there than prospering by meeting customer needs? Everybody benefits; everybody is striving to serve the customer better. Success is a reward for doing the right thing.

Put these three qualities together – completeness (and therefore closedness), practicality and moral purpose – and you have a recipe for ideological triumph.

Now let’s consider the assumptions the mantra smuggles in along the way. All of them are perfect expressions of an industrial age mindset.

A corporate perspective. As soon as you utter the mantra ‘identify and meet customer needs’ you leave the world of the individual and cross the fence to the other side.You are no longer looking at the world through the eyes of an individual. You are looking at ‘customers’ and potential customers through the eyes of a corporation. You have externalised yourself, becoming an outsider ‘focusing’ on an object of interest (You simply cannot ‘focus’ on yourself from the inside. Try it). That’s why, behind its ritual exhortations to ‘get close’ to customers, mantra is in fact, both the expression and a cause of deep estrangement. Marketers’ quest for ‘closeness’ to their customers is just a symptom of the huge and irrevocable distance that has been created.

A control perspective. The mantra ‘identify and meet customer needs’ unwittingly sucks you into a deep and almost invisible assumption. It is the corporation doing all the identifying and meeting: the corporation is doing everything; the customer is doing nothing. The corporation is active; the customer passive. The corporation is the subject; the customer the object. The almost inevitable baggage of the identify and meet customer needs mantra then, is that the individual is powerless and passive … ‘needy’.

The supply perspective. As soon as you utter the mantra ‘identify and meet customer needs’ you assume a massive and insurmountable division of labour between customers and companies. Needs are met by producers who produce. Value resides only in the processes of supply. All ‘the consumer’ has to do is consume.

Corporate narcissism and the assumption of ‘customer capture’. By definition, a customer is someone who buys things from us. The word ‘customer’ assumes a pre-existing, one-to-one relationship between the company and its customer. The customer agenda is only about the value provided by that particular company – not the value ‘needed’ by the customer overall. At the same time, it defines customer value in terms of what that one particular company produce.

This last assumption generates a huge blind spot in the world of marketing. The real, underlying reason for the mantra is not because marketers want to meet peoples’ needs, but because they want to make money selling stuff. The real purpose of the mantra is to ensure the customer buys this particular marketer’s particular product or service.

That’s why, in reality, most day-to-day activities of most marketers do not revolve around ‘identifying and meeting needs’. They revolve around something entirely different: trying to influence customers and potential customers to choose their particular offerings. Here, marketing quickly flips over from ‘identifying and meeting customer needs’ to ‘changing customer attitudes and behaviours’ … (for the company’s benefit).Not about meeting customer needs therefore, but meeting the needs of the corporation.

This leaves one set of customer needs completely sidelined and ignored: the need to ‘make the right choice for me and my circumstances’. No marketer is interested in meeting this need. It might lead the individuals to choose an alternative supplier.

To see just how limiting and limited the mantra really is, consider an alternative. ‘A buyer-centric business or service helps individuals make and implement decisions better.’

Making better decisions is the fountainhead of all value, because it necessarily leads us to the right product or service. It also takes us way beyond all those industrial age assumptions. It looks out at the world from the point of view of the individual. It’s about better use of information, as distinct to the supply of products or services. It’s about the individual being active and in control, not the corporation. It’s about the individual’s purposes being placed centre stage.

Also, in the process of making better decisions, we as individuals cannot help but identify and articulate needs – thereby overcoming the estrangement generated by the marketing mantra.

“Helping individuals make and implement decisions better” isn’t a perfect description of what Right Side Up businesses and service do, but it’s a start. Can you help me improve on it?

November 26, 2007

As a buyer of far too many computing gadgets over the years, I’ve become very familiar with the term ‘hard re-set’. This is typically used to describe a situation in which a system has got its inner workings so tied up in knots that the only way to fix it is to wipe the slate clean and start again.

I’m increasingly of the view that a hard re-set is what is required to re-invent the direct marketing industry (in which I include Facebook, Adwords et al) and in doing so prevent it from self-destructing. Before we get to what that hard re-set will involve, let’s be clear about what the problem is.

In my view, what’s killing the industry (which I’ve been part of since 1986) is its determination to cling on to the principle that unless an individual has ‘Opted Out’ then they are fair game to be targeted with marketing messages.

In some aspects of the direct marketing industry, e.g. direct mail prospecting, the interpretation of ‘opt out’ is not subtle, i.e. we’ll physically mail you with whatever we like, when we like…..and enough of you will respond to make it worth our while.

In other areas, e.g. e-mail marketing or loyalty/ retention marketing there is at least some form of value exchange in place….give us your contact details and consent so we can market to you, and we’ll let you have a look at content ‘for free’ or we’ll give you a discount on something you may buy (both of which, by the way, we may cover the cost of and more by selling your contact details and related data to someone else).

There are further aspects of the industry that are prone to what amounts to self-serving behaviours on behalf of the direct marketer. These typically involve the ‘grey areas’ such as ‘soft opt-in’ (deriving an opt-in from an existing ‘relationship’ rather than a pro-active customer consent); advertising within service communications; selective interpretation of how to use industry suppression files (such as the Mailing Preference Service in UK or Do Not Call list in USA); weak design of suppression files (i.e. too many exceptions left in place); burying the use being made of personal data either by summarising to a meaningless level, or losing within privacy policies that no-one reads other than those who drafted them.

But….guess what….. despite all this trickery, selective interpretation and manipulation, it’s still not working. Opt Out rates continue to climb on internal and external suppression files……, at least until the next work-around or piece of marketing spin makes them dip for a few months, before the inexorable upwards march continues.....and response rates on many direct marketing activities are zero.

What’s the direct marketing industry response to this? It’s simple – find new direct channels (e,g, Google Adwords, Facebook) and/ or send more messages. After all, e-mail costs peanuts to send, and on ‘digital’ we can at least pretend we have permission to market’. So, I’m really looking forward to counting how many ‘twelve days of xmas’ e-mail campaigns I get targeted with this year (in fact I got my first this morning); which marketer can turn down the opportunity to send e-messages 12 days in a row?

Of course none of this would matter if marketers were sending messages that were highly targeted, using good input data, and thus were relevant to the recipient. They are not – the average 98% non-response rate is enough evidence for that (wouldn’t it be good for the mind-set change if Marketing Directors tracked campaign performance via non-response rates instead of the response rates they ask for now!!!). And this issue of relevancy of message is where we realise that the inner workings of direct marketing as currently deployed need that hard re-set:

• Sending relevant communications requires rich, ‘needs’ based data (typically expressed as ‘intention’)
• The only source of accurate needs/ intention data is the individual
• But the individual knows that handing over rich, needs based data will increase the amount of direct marketing they are exposed to
• So they either don’t hand it over, or enter flawed or dummy data to get at what they want (where consent is being swapped for information)
• Leaving organisations to derive ‘needs’ from other sources (e.g. transaction history) – and thus send irrelevant messages informed by best guesswork.

As an aside, when deriving from transaction and interaction data, some organisations will direct market better than others…Amazon, Tesco, Network Solutions are some who do it well – at least in the current modus operandi. They typically take the time and effort to do rich analysis on the raw material they do have, and send communications based on it. But even their raw material has flaws; to illustrate:

• Amazon regularly send me e-mails along the lines of ‘other people who bought MySQL for Dummies bought MySQL for Beginners’; the problem being that the MySQL book I bought was for a developer working with us. The chances of me buying another one are zero – that need has long since gone. Of course Amazon could provide me with tools to flag that this book was not for me…..but why would I want to spend time cleaning up data (unless, of course, it was exportable to my own record)?
• Tesco – I have a Clubcard although could not honestly say that it ever influences my buying behaviour as I’ll buy groceries from whichever supermarket is near where I happen to be and rotate around the online deliverers waiting for one to come up to scratch. That said, Tesco don’t seem to bother me much with direct marketing, so I’m obviously not in a high value segment (according to the data they have anyway), and they are probably making enough money from me in re-selling what they do know to the FMCG manufacturers.
• Network Solutions. These guys are my favourites, they try so hard on cross and up-selling and have designed much of it very well that they could be a ‘poster child’ for CRM. The problem is they just don’t know when to stop deriving ‘new stuff we could sell’ from the scraps of data they have access to. Consider the screen-grab below, which is what they present me with each time I’m on their site. Granted, I do live in England; but surely even the most optimistic marketer is not going to expect to sell www.iainhenderson-england.com to a Scotsman!!!!

So….back to that hard re-set…..

I believe that there are four components of a solution that, when deployed, would revolutionise direct marketing; and in doing so build a more receptive customer base. A genuine win-win that would far outstrip the short-term headaches. The components are:

Cross-Media Suppression File

The first, and most fundamental, the hard re-set itself, is making available a blanket opt out of all direct marketing suppression file. That is to say, a reference file within which an individual can register their preference to receive NO direct marketing messages at all from point of registration onwards – unless they have actively and overtly opted in through a consents management vehicle under their control. This file would include all direct media (direct mail, e-mail, SMS, telephone, mobile telephone, VOIP, pop-ups/ i.e. tracking cookies – and any other direct media invented over time). The file would be created as a stand alone entity, but could be configured to take in feeds from existing suppression files such as Mailing Preference Service, Do Not Call, the proposed Do Not Track etc.

Persona/ Role Based Opt In Capability

Second - the capability for the individual to establish one or more ‘privacy profiles’ at persona/ role level. The ability to operate at persona level is key in that in different aspects of life an individual may wish to establish different communications preferences. For example an individual in their head of household mode may wish to receive ‘no junk mail’, but in their ‘Secretary of the Golf Club’ persona they may be happy to receive messages from useful business services only….but delivered to a different address.

Articulation of Needs/ Wants (Intentions) in Usable Format

Next - when the blanket opt out is established as a point of principle, the end user then must be enabled to opt back in to specific communications – but on their own terms. This means being able to specify some or all of:

• Who they wish to receive messages from
• Which message types they wish to receive (e.g. offers, quotations, reminders, news updates)
• About what do they wish to hear
• At what time do they wish messages to arrive
• Through which channel
• Over which time period should messaging be switched on

Message Management Capability

Lastly we need a message matching and management capability. The above capabilities, in combination, generate a file of ‘opted in, buying intentions requesting matching offers’. This must then be matched against a file of ‘people/ organisations that want to sell stuff/ provide requested offers or information. Where a match is found, an introduction is made, where not – no message is sent (or that no messages matching criteria set are available). Ideally the message matching and management capability will be able to work across all relevant media. It should also have ‘closed loop’ reporting capabilities in order that all parties can track the success of their actions/ learn for future use. It should also help the recipient understand the upsides and downsides of the various media options in the context of what they wish to receive in order that they choose which works best for each message. (e.g. a mailed catalogue may be most environmentally damaging, but may still be the best means of deciding which conservatory to buy as it offers most detailed visuals and descriptions in a format that can be browsed in a relaxed/ un-pressured manner.

In addition to these 4 building blocks, there is an implied commercial logic in such a modus operandi. This is quite simply that by respecting individuals’ right to chose the direct marketing messages they receive the response and conversion rates from these messages will be much higher.

For example, I already know that I will lease a new car next April when my existing lease runs out. I have a pretty good idea which manufacturers I’ll consider, and which cars within those manufacturers. And what I don’t know now, I will research through buyer-centric information sources such as Which, Edmonds or similar. Once I’ve made up my mind on a preferred option, with all the options I want tagged, and two fall back positions then I’ll ‘go to market’ with a very clear spec, defined time lines, and money waiting to close the deal. I’ll end up with what I want at a fair price, and the suppliers I engage with will either have closed a sale, or come close without wasting too much time/ effort.

My colleagues and I have built a VRM Proof of Concept that demonstrates the above, it is accessible here.

This proof of concept shows a scenario in which the individual is fully in charge of the direct marketing messages they receive. It shows illustrative deployments of the 4 building blocks above. It’s not fully built out by any means – no organisation is using the suppression file in anger, only a few products and services in the opt-in table have any substance behind them (ipods and travel insurance), product/ service selection itself could be built out in many alternate ways, and e-mail is the only messaging protocol demonstrated.

…..but it does show how an individual could be empowered to only receive the direct marketing messages they want to receive….and only those messages.

What would be required to shift from the current approach to something like that shown in the Privacy Preference Service?

Firstly, let’s be clear – it’s not about technology, although that helps in specific aspects of the challenge. Also, it’s not about changes in legislation – all that ever does is raise the bar on a temporary basis until commerce demands that work-arounds be found. New/ upgraded legislation will emerge in the privacy space over time, and will help – but it won’t be leading the charge.

It’s really about that mind-set change, which is, of course, helped if it is underpinned by commercial logic. Organisations must recognise that they are alienating their customers and prospects by sending irrelevant marketing messages. They must also realise, difficult as it will be, that ramping up spend on data mining, customer insight, real-time ‘next best offers’, Facebook beacons etc etc, and all the latest CRM wizardry is not the answer. The real answer is to cede control of ‘customer needs’ data to the customer themselves, and to build tools and services that allow this data to flow.

That’s what Project VRM will do. The logic behind Project VRM is clear - that the tools require to balance relationships must be built on the customer side. Permission management tools such as those discussed above are a good start point.

October 26, 2007

At first glance, the ownership of “my” data seems straight forward. I created it (or at least was involved at the beginning), it’s about me, so I own it. But personal data is a slippery concept. For one thing, a lot of the time it’s co-created – by me and my supplier, including my government. And tying down the legal specifics of data ownership is a bit of a minefield. Hence the recent and continuing debate on the Project VRM mailing list about whether an individual does, can or should ‘own’ personal data relating to them.

I take the view that individuals will ultimately have a form of ownership rights to data that relates to them. So far so good, but the word “ultimately” there is important, and frustrating. This will take some time to happen, and will relate to only some of the data in question. My view is that ‘ownership’ of personal data will come about through a combination of issues and events; and that this will all pan out over the next few years.

Firstly, the sensitivity of individuals to problems with firm’s use of data is rapidly increasing. The way most organisations gather and use data is often invisible to the individual, and almost always annoying to them. For one thing, there are regular and sizable breaches in data security. One example is the TK Maxx breach – which has now doubled in size from that originally admitted. Plus there’s a growing identity theft problem, with little sign of a solution in sight. And as we all know there are ongoing problems with spam to compound the everyday irritation of poorly targeted, invasive direct marketing. In the same ‘worrying’ space are large corporate acquisitions or investments (e.g. Flickr/ Yahoo or Facebook/ Microsoft) in which access to identity data initiated by and important to the subject are traded for a few dollars per record.

This increasing pain, without legal recourse, will drive some firms to offer commercial services to reduce that pain. These will include ‘who has data about me’ services such as Garlik, reverse-marketing services such as Pureprofile, transparency enablers such as The Trust Index (disclosure – this one is one of my hobby horse projects) and some plays from more traditional players in the personal data space such as Experian, Equifax or CallCredit. All are now beginning to explore how they can sell personal data back to the data subjects.

Another driver will be data breach notification legislation. It will be deployed in the EU and in many other countries. I expect it will be watered down, and won’t do too much in practice to change the accessibility of stolen customer data. The going rate, by the way, is £140 for 1000 credit card records – with security codes – or so I heard the last time I checked. But no matter, such legislation will at least build some additional legal rights on the side of the individual in the personal data space.

Next, opt-in-based direct marketing is going to become the norm across ALL communications channels - upping the value of 'permissions' data. This will be a sensible approach for large organisations to adopt commercially, largely for environmental reasons. And user-centric identity technologies (such as open ID, Infocard and i-names) will start to become more popular. They’ll impact b2c (or more accurately c2b) electronic relationships. People will want to restrict the flow of personal data into organisations, though people will see a clear trade off in offering personal data to get improved customer experience.

Meanwhile, the next generation of personal information management services will emerge. These alternative ‘single views of the customer’ will be available for organisations to tap into -- with permission, and usually at a cost. This will be the trigger point for real change. For the first time, data sourced FROM an individual will be more valuable commercially than data gathered ON an individual. In practice, this is about “pull”: the commercial value of these new data sources comes from the higher response rates that come from the much improved relevancy of communications. ‘Pull’ beats ‘push’ every time at the micro, one-to-one level.

When this new value is created within the PIMS, commercial law swings into gear. Individuals and suppliers will build robust contracts around these new services and at last, we have something akin to ownership of our personal data.

In short, the point at which I will ‘own’ my personal data is the point at which I can actively manage it. If I have the choice over whether to sell it to someone, and can cover that sale with a standard commercial contract, then I clearly have title. But – and this is crucial – this doesn’t mean that I ‘own’ all the personal data that relates to me. Lots of it will still be lying around in various supplier operational systems that I won’t have access to (and probably don’t want to – much of it is not worth me bothering about).

Technically we can just about do this now. As ever, I think we’ll have to wait a bit longer for all this to build a mass market for personal data ownership and management. That said, I think we’ll start to see little signs of life in this space over the next 12 months. Watch, as they say, this space.

Talking of which, do any of you database marketers out there want to buy my ‘intention to buy’ data for the next 6 months? I’ll break it down by product / service category, add likely purchase dates, indicative amounts and existing preferences of various types… and send it in a format that feeds straight in to your CRM system. £10 per category for a one off use, and I can GUARANTEE that my data will be more predictive of what I’m going to buy than your own analysis or what you can buy in from other external data providers.

Let’s start with the assumption that we are indeed moving away from yesterday’s persuasion paradigm towards a new, personal decision making paradigm (Beyond the persuasion paradigm: http://rightsideup.blogs.com/my_weblog/). Does that mean ‘the death of’ or even the decline of traditional advertising?

I don’t think so. To see why not, we need to disentangle different elements of the blanket term ‘advertising’: like the air we breathe, it’s actually an amalgam of many different elements.

The drivers of advertising

We tend to think of advertising in terms of seller-centric huff-puffery where companies narcissistically interrupt what we happen to be doing to shout “Look at me! Aren’t I wonderful!” There is a lot of this sort of advertising around. But it is not the complete picture.

Some advertising is actually used by ‘consumers’ as an input into their decision-making processes. Yes, most advertising is just self-interested hustle, but when companies bring new products to market (for example), their ads do actually announce new value opportunities to a sometimes eager audience. That’s why much of the research into so-called advertising ‘effectiveness’ finds that ads which announce ‘new news’ tend to generate bigger, better responses than ads which simply continue tired ‘brand wars’. To a certain degree (and it is only a certain degree) these ads are useful to their recipients.

Advertising generates a ‘win’ for consumers in another important way. This time, the benefits have nothing to do with the actual content of any particular ad but its economics – the fact that it subsidises the provision of editorial content. Yes, interruption advertising can be incredibly irritating, but still many people are willing to put up with these annoyances in return for free access to content they want. This may change at the edges, but the model as a whole is quite robust. It is unlikely to disappear soon.

There are other detailed niches of advertising which also generate consumer value. In magazines like Vogue, the ads are effectively part of the editorial content: people buy the magazine to look at the style suggestions being made by the ads as well as to read the articles. In the case of luxury goods, the ad provides a large part of the product’s value: the symbolic value that users so crave: ‘Look how rich I am! Look how stylish I am!’ We may sneer at such foibles, but I suspect they are a human universal and are therefore here to stay.

In each of these cases, the fact that there is a consumer benefit as well as a seller benefit means that these forms of advertising are probably here to stay.

In addition, there are other benefits for sellers which arise whether they benefit consumers or not.

Advertising agencies like to sell dreams of strong advertising effects to corporate clients: ‘if you use our advertising, it will press buttons in consumers hearts and minds to make them do exactly what you want them to do’. This sales pitch works time and time again, not because it has any foundation in fact but because clients desperately want to hear it. Hope springs eternal and opens boardroom purses, thereby providing an ongoing impetus for the advertising industry (even if, nine times out of ten, the client ends up being disappointed).

There is, however, another way in which advertising really does ‘work’. This is a ‘weak’ influence, but an important influence nevertheless. Human minds are bit like broadband internet: they are ‘always on’, forever taking information in from their environments, the vast majority of which goes in under the radar screen of consciousness. This is how, as organisms vulnerable to danger, we scan and monitor our environments to stay alive.

Ads have become a part of our environment. We ‘notice’ them just as we notice the sound of an aeroplane, the temperature of the room, the smell of the coffee – we just take the information in as part of the routine of every day life.

The effect of this advertising is that when we see the product or brand concerned we ‘recognise’ it. This means two things. First, (by definition) we can only remember products that we recognise – and memories do influence purchases. Second, we are more likely to positively choose a product that we recognise than one we don’t. It’s more familiar, safer, less risky.

This sort of advertising doesn’t actually ‘persuade’ us to do anything and its actual effect on purchasing decisions is quite small. But it is real. Brand and product ‘fame’ creates a competitive advantage for products that are advertised over products that are not advertised, forcing advertisers into advertising arms races – whether they like it or not.

This means that regardless of how much it costs, how wasteful it is, how annoying it is to consumers, and how little persuasive effect it really has, selling companies will probably feel compelled to advertise long in to the future.

Advertising channels

All of the above comments relate to ‘advertising’ in general – not to any particular media channel or industrial category. Once we drill down a level to different media channels and industry categories, a whole series of specific issues kick in, with highly specific implications for each channel.

So, for example, traditional classified advertising for jobs and property can be far more efficiently displayed and far more efficiently accessed by users on the Net. So, far from this form of advertising going into decline, it is likely to grow and expand in the more supportive online environment. This may mean an earthquake for traditional media vehicles which rely on classified ads: even a 15-20% decline in classified ad revenues spells real profitability problems for many trade and professional magazines and many local newspapers. This is a real crisis for the businesses involved. But it is driven by a migration of advertising, not its decline.

The same is true for direct marketing. There are some purposes for which direct mail to physical postal addresses is both efficient and effective from the seller’s point of view, but in many cases data-driven ‘personalised’ online communication is both cheaper and generates a higher response rate. Again: a migration of advertising, not a decline.

The rise of bottom-up demand signalling models – ‘here I am, this is what I want to buy right now’ – may well lead to a diversion of some advertising funds from mass display to personalised sense-and-respond mechanisms in some advertising sectors such as motors or financial services. However, volume-wise, this development is likely to affect a relatively small proportion of total advertising in the short to medium-term future.

Meanwhile, in display arenas such as TV and national newspapers, the twin forces of the editorial subsidy and the inter-advertiser ‘weak force’ arms race means that total advertising spends are unlikely to decline by a huge amount, if at all.

One key factor here is that if a major advertising sector such as motor, financial services, retail or consumer goods decides to shift its spend elsewhere, there are plenty of other industry verticals who would just love to advertise in these vehicles if only they could afford to do so. So we are more likely to see a continuous shuffling of the revenue/advertiser pack than a precipitous cliff-face decline in these media channels.

Meanwhile, all the pro-advertising forces described above – the win-wins behind ‘new news’, the editorial subsidy, the niche markets, the unavoidable ‘weak’ effects of brand fame – apply as much to the Net as to other media. So yes, it is inevitable that the Net is going to become a major advertising vehicle.

Chalk and cheese

What has all this got to do with the rise of personal information management and decision making services? The answer is ‘very little’. The forces that are keeping advertising afloat and driving large parts of it to the Net have actually got very little to do with the forces that are driving the rise of personal information management services. And where they do overlap they are likely to be more complementary than opposing.

For example, as services which help individuals make better decisions grow and mature, many of them will become significant advertising channels in their own right. Take Edmunds.com. It is now the most influential source of buying information for car buyers in the US, and because it provides such useful information to car buyers it attracts huge audiences. These audiences make it a valuable advertising vehicle for car sellers, which is how and why it makes its money – by selling advertising. From the advertiser point of view, it is just another ‘channel’.

So here’s the bottom line. The development of new personal information management services is unlikely either to be helped by a decline in traditional advertising or hindered by its continued healthy growth. ‘Person centric service’ is a new growth industry in its own right.

Yes there are overlaps and these overlaps will grow, but creating the new is not the same as demolishing the old. And the really big, exhilarating opportunity is to create the new.